BILL NUMBER: SB 1262	CHAPTERED  10/10/99

	CHAPTER   664
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 6, 1999
	PASSED THE SENATE   SEPTEMBER 10, 1999
	PASSED THE ASSEMBLY   SEPTEMBER 9, 1999
	AMENDED IN ASSEMBLY   SEPTEMBER 7, 1999
	AMENDED IN ASSEMBLY   SEPTEMBER 2, 1999
	AMENDED IN ASSEMBLY   AUGUST 31, 1999
	AMENDED IN ASSEMBLY   AUGUST 19, 1999
	AMENDED IN ASSEMBLY   JULY 7, 1999
	AMENDED IN ASSEMBLY   JUNE 24, 1999
	AMENDED IN SENATE   APRIL 22, 1999

INTRODUCED BY   Senator O'Connell and Assembly Member Lempert
   (Coauthors:  Assembly Members Aroner, Davis, Jackson, Kuehl,
Lowenthal, Maldonado, Romero, and Scott)

                        FEBRUARY 26, 1999

   An act to amend Sections 69980, 69981, 69982, 69983, 69984, 69985,
69986, 69989, and 69993.5 of, and to add Section 69993.7 to, the
Education Code, relating to student financial aid.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1262, O'Connell.  Student financial aid:  Golden State
Scholarshare Trust Act.
   (1) Existing law establishes the Golden State Scholarshare Trust
Act, pursuant to which, under regulations adopted by the Student Aid
Commission, participants invest money in the Golden State
Scholarshare Trust for the benefit of a specific beneficiary for the
advance savings for the beneficiary's higher education expenses, as
defined, at certain postsecondary educational institutions.  Existing
law establishes the Scholarshare Investment Board, which consists of
the Treasurer, the Director of Finance, and the chief executive
officer of the commission.
   This bill, instead, would include on the board a member of the
Student Aid Commission appointed by the Governor, rather than the
chief executive officer of the commission, and would add as board
members the Secretary of Education, a member of the public appointed
by the Governor, a representative from a California public
institution of higher education appointed by the Senate Committee on
Rules, and a representative from a California independent college or
university or a state-approved college, university, or
vocational/technical school appointed by the Speaker of the Assembly.
  The bill would require the board to appoint an administrator of the
program, who would serve at the pleasure of the board.
   The bill also would require the board, rather than the commission,
to adopt regulations, and to undertake other duties, applicable to
the Golden State Scholarshare Trust Act.
   The bill would provide that regulations adopted by, and contracts
entered into by, the commission for purposes of the act are deemed to
be regulations adopted by, and contracts entered into by, the board
and that these contracts may be amended when authorized by the board.

   The bill would make related technical changes.
   (2) The existing Golden State Scholarshare Trust Act prohibits the
overall maximum investment level for a designated beneficiary from
exceeding the amount equivalent to the maximum estimated qualified
higher education expenses, as defined, that can be incurred by a
beneficiary to obtain a baccalaureate degree at an institution of
higher education in California in 4 years, as specified.
   This bill would amend the Golden State Scholarshare Trust Act to
increase to 5 years the period of undergraduate study on which the
calculation of maximum estimated qualified higher education expenses
is based.
   (3) Existing provisions of the Golden State Scholarshare Trust Act
require that each participation agreement entered into by a
participant in the scholarshare program require the participant to
agree to invest a specific amount of money in the trust for a
specific period of time for the benefit of a specific beneficiary,
and require that a change in beneficiaries may only be made prior to
the date of admission of any beneficiary under a participation
agreement by an institution of higher education.
   This bill would delete these provisions.
   (4) Existing provisions of the Golden State Scholarshare Trust Act
establish procedures for the payment of qualified higher education
expenses, as defined, from trust funds and for the execution of
participation agreements under the act.
   This bill would authorize administrators of the scholarshare
program to develop a method to make payment of qualified higher
education expenses directly to beneficiaries in a manner consistent
with applicable federal requirements.  The bill would authorize
custodians under the California Uniform Transfers to Minors Act to
enter into participation agreements under the act in accordance with
regulations adopted by the board.
   (5) The bill would prohibit public funds and funds available under
the program from being expended to pay for, and would prohibit the
board from entering into any agreement that provides for, the
appearance of any elected official or declared candidate for public
office in any paid advertisement promoting the program.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 69980 of the Education Code is amended to read:

   69980.  As used in this article, the following terms have the
following meanings, unless the context requires otherwise:
   (a) "Act" or "Scholarshare trust" or "Scholarshare" means the
Golden State Scholarshare Trust Act.
   (b) "Administrative fund" means the funds used to administer the
Golden State Scholarshare Trust Act.
   (c) "Beneficiary" has the same meaning as "designated beneficiary,"
as provided in paragraph (1) of subsection (e) of Section 529 of the
Internal Revenue Code of 1986, as amended by Section 211 of the
Taxpayer Relief Act of 1997 (Public Law 105-34).
   (d) "Benefits" means the payment of higher education expenses on
behalf of a beneficiary by the Scholarshare trust during the
beneficiary's attendance at an institution of higher education.
   (e) "Board" means the Scholarshare Investment Board established
pursuant to subparagraph (B) of paragraph (2) of subdivision (a) of
Section 69984.
   (f) "Golden State Scholarshare Trust" or "Scholarshare trust"
means the trust created pursuant to this act.
   (g) "Institution of higher education"  has the same meaning as
"eligible educational institution," as provided in paragraph (5) of
subsection (e) of Section 529 of the Internal Revenue Code of 1986,
as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public
Law 105-34).
   (h) "Participant" means an individual, trust, estate, partnership,
association, company or corporation, a custodian under the
California Uniform Transfers to Minors Act (Part 9 (commencing with
Section 3900) of Division 4 of the Probate Code), a state or local
government agency, or a legal representative of a participant who has
entered into a participation agreement pursuant to this act.
"Participant" also means an account owner.
   (i) "Participation agreement" means an agreement between a
participant and the Scholarshare trust, pursuant to this act.
   (j) "Program administrator" means the administrator of the
Scholarshare trust appointed by the board to administer and manage
the trust.
   (k) "Program fund" means the program fund established by this act,
which shall be held as a separate fund within the Scholarshare
trust.
   (l) "Qualified higher education expenses" means the expenses of
attendance at an institution of higher education as provided in
paragraph (3) of subsection (e) of Section 529 of the Internal
Revenue Code of 1986, as amended by Section 211 of the Taxpayer
Relief Act of 1997 (Public Law 105-34), and as determined and
certified by the institution of higher education in the same manner
as prescribed in Title IV of the Higher Education Act of 1965 (20
U.S.C. Sec. 1087ll, as amended).
   (m) "Tuition and fees" means the quarterly or semester charges
imposed to attend an institution of higher education and required as
a condition of enrollment.
  SEC. 2.  Section 69981 of the Education Code is amended to read:
   69981.  (a) There is hereby created an instrumentality of the
State of California to be known as the Golden State Scholarshare
Trust.
   (b) The purposes, powers, and duties of the trust are vested in,
and shall be exercised by, the  board.
   (c) The  board, in the capacity of trustee, shall have the power
and authority to do all of the following:
   (1) Sue and be sued.
   (2) Make and enter into contracts necessary for the administration
of the Scholarshare trust.
   (3) Adopt a corporate seal and change and amend it from time to
time.
   (4) Cause moneys in the program fund to be held and invested and
reinvested.
   (5) Enter into agreements with any institution of higher
education, the State of California, or any federal or other state
agency or other entity as required for the effectuation of its rights
and duties.
   (6) Accept any grants, gifts, legislative appropriation, and other
moneys from the state, any unit of federal, state, or local
government or any other person, firm, partnership, or corporation for
deposit to the administrative fund or the program fund.  Except as
otherwise provided in Section 69982, the trust may not accept any
contribution by any nonpublic entity, person, firm, partnership, or
corporation that is not designated for a specified beneficiary.
   (7) Enter into participation agreements with participants, as set
forth in Section 69983.
   (8) Make payments to institutions of higher education pursuant to
participation agreements on behalf of beneficiaries.
   (9) Make refunds to participants upon the cancellation of
participation agreements pursuant to the provisions, limitations, and
restrictions set forth in this act.
   (10) Appoint a program administrator and determine the duties of
the program administrator and other staff as necessary and set their
compensation.
   (11) Make provisions for the payment of costs of administration
and operation of the Scholarshare trust.
   (12) Carry out the duties and obligations of the Scholarshare
trust pursuant to this act and have any and all other powers as may
be reasonably necessary for the effectuation of the purposes,
objectives, and provisions of this act pertaining to the Scholarshare
trust, as set forth in Section 69982.
   (d) The board shall adopt regulations as it deems necessary to
implement this article consistent with the federal Internal Revenue
Code and regulations issued pursuant to that code to ensure that this
program meets all criteria for federal tax-deferral or tax-exempt
benefits, or both.
  SEC. 3.  Section 69982 of the Education Code is amended to read:
   69982.  In addition to effectuating and carrying out all of the
powers granted by this act, the board shall have all powers
reasonably necessary to carry out and effectuate the purposes,
objectives, and provisions of this act pertaining to the Scholarshare
trust, including, but not limited to, the power to do all of the
following:
   (a) Carry out studies and projections in order to advise
participants regarding present and estimated future higher education
expenses and the levels of financial participation in the trust
required in order to enable participants to achieve their education
funding objectives.
   (b) Contract for goods and services and engage personnel as
necessary, including consultants, actuaries, managers, counsel, and
auditors for the purpose of rendering professional, managerial, and
technical assistance and advice.
   (c) Participate in any other way in any federal, state, or local
governmental program for the benefit of the Scholarshare trust.
   (d) Promulgate, impose, and collect administrative fees and
charges in connection with transactions of the Scholarshare trust,
and provide for reasonable service charges, including penalties for
cancellations.
   (e) Procure insurance against any loss in connection with the
property, assets, or activities of the Scholarshare trust.
   (f) Administer the funds of the Scholarshare trust.
   (g) Procure insurance indemnifying any member of the board from
personal loss or liability resulting from a member's action or
inaction as a member of the board.
   (h) Adopt reasonable regulations for the administration of the
Scholarshare trust.
   (i) Set minimum and maximum investment levels.
   (j) (1) Except as otherwise provided in this section, the overall
maximum investment level for a designated beneficiary shall not
exceed the amount equivalent to the maximum estimated qualified
higher education expenses, as defined by subdivision (l) of Section
69980 and established by the trust, that can be incurred by a
beneficiary to obtain a baccalaureate degree at an institution of
higher education in California  in five years commencing in the year
the majority of beneficiaries of that age are expected to be eligible
to enroll in a higher education program for four years.  The maximum
investment level shall be published by the trust as a monetary
amount by year group, in order to state contribution limits clearly
and to encourage participation on behalf of beneficiaries who will
attend all types of higher education institutions, both public and
independent.
   (2) Participants shall be permitted to make up payments, in full
or in part, for years in which they were eligible to contribute, but
did not, including years prior to the enactment of this section, for
the benefit of a designated beneficiary.  Contributions by entities
exempt from taxation pursuant to Section 501(c)(3) of the Internal
Revenue Code and state and local government agencies operating bona
fide scholarship programs for the benefit of beneficiaries to be
named when the scholarships are awarded are not subject to maximum
contribution limits.
  SEC. 4.  Section 69983 of the Education Code is amended to read:
   69983.  The Scholarshare trust may enter into participation
agreements with participants on behalf of beneficiaries pursuant to
the following terms and agreements:
   (a) The board may specify a required minimum length of time before
distributions for higher education expenses may be made and may
impose a penalty on the early distribution of funds if deemed by the
trust to be necessary.
   (b) Participation agreements may be amended to provide for
adjusted levels of payments based upon changed circumstances or
changes in educational plans.
   (c) Beneficiaries designated in participation agreements may be
designated from date of birth.
   (d) Participants shall be informed that the execution of a
participation agreement by the trust shall not guarantee in any way
that higher education expenses will be equal to projections and
estimates provided by the trust or that the beneficiary named in any
participation agreement will do any of the following:
   (1) Be admitted to an institution of higher education.
   (2) If admitted, be determined a resident for tuition purposes by
the institution of higher education.
   (3) Be allowed to continue attendance at the institution of higher
education following admission.
   (4) Graduate from the institution of higher education.
   (5) Have sufficient savings to cover fully all qualified education
expenses of attending an institution of higher education.
   (e) Beneficiaries may be changed as permitted by the regulations
of the board upon written request of the participant, provided that
the substitute beneficiary is eligible.
   (f) Participation agreements shall be freely amended throughout
their terms in order to enable participants to increase or decrease
the level of participation, change the designation of beneficiaries,
and carry out similar matters.
   (g) Each participation agreement shall provide that the
participation agreement may be canceled upon the terms and
conditions, and upon payment of a penalty, set forth and contained in
the regulations adopted by the board.
   (h) All contributions to Scholarshare accounts shall be in cash.

  SEC. 5.  Section 69984 of the Education Code is amended to read:
   69984.  (a) (1) The board shall segregate moneys received by the
Scholarshare trust into two funds, which shall be identified as the
program fund and the administrative fund.  Notwithstanding Section
13340 of the Government Code, the program fund is hereby continuously
appropriated, without regard to fiscal years, to the board for the
purposes of this article.  Funds in the administrative fund shall be
available for expenditure, upon appropriation, for the purposes
specified in this article.
   (2) (A) The trust shall separately account for any moneys received
by an entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code or a state or local government agency,
depositing the money for the benefit of a beneficiary to be named
later pursuant to the operation of a bona fide scholarship program.
   (B) There is hereby created the Scholarshare Investment Board,
which consists of the Treasurer, the Director of Finance, the
Secretary of Education, a member of the Student Aid Commission
appointed by the Governor, a member of the public appointed by the
Governor, a representative from a California public institution of
higher education appointed by the Senate Committee on Rules, and a
representative from a California independent college or university or
a state-approved college, university, or vocational/technical school
appointed by the Speaker of the Assembly.  The Treasurer shall serve
as chair of the board.  The board shall appoint an administrator of
the program who shall serve at the pleasure of the board.  The board
shall annually prepare and adopt a written statement of investment
policy.  The board shall consider the statement of investment policy
and any changes in the investment policy at a public hearing.  The
board shall approve the investment management entity or entities
consistent with subparagraph (C).  Not later than 30 days after the
close of each month there shall be placed on file for public
inspection during business hours a report with respect to investments
made pursuant to this section and a report of deposits in financial
institutions.  The investment manager shall report the following
information to the board within 30 days following the end of each
month:
   (i) The type of investment, name of the issuer, date of maturity,
par and dollar amount invested in each security, investment, and
money within the program fund.
   (ii) The weighted average maturity of the investments within the
program fund.
   (iii) Any amounts in the program fund that are under the
management of private money managers.
   (iv) The market value as of the date of the report and the source
of this valuation for any security within the program fund.
   (v) A description of the compliance with the statement of
investment policy.
   (C) Moneys in the program fund may be invested or reinvested by
the Treasurer or may be invested in whole or in part under contract
with private money managers, as determined by the Scholarshare
Investment Board.
   (b) Transfers may be made from the program fund to the
administrative fund for the purpose of paying operating costs
associated with administering the trust and as required by this act.
On an annual basis, expenditures from the administrative fund shall
not exceed more than 1 percent of the total program fund.  All costs
of administration of the trust shall be paid out of the
administration fund.
   (c) All moneys paid by participants in connection with
participation agreements shall be deposited as received into the
program fund and shall be promptly invested and accounted for
separately.  Deposits and interest thereon accumulated on behalf of
participants in the program fund of the Scholarshare trust may be
used for payments to any institution of higher education.
  SEC. 6.  Section 69985 of the Education Code is amended to read:
   69985.  (a) Any participant may cancel a participation agreement
at will.  Participants shall be entitled to a refund upon
cancellation thereof of an amount equal to the then current market
value of the amount of all contributions made to their account, less
a penalty with respect to the interest earned thereon to be levied by
the Scholarshare trust that shall be more than de minimis.
   (b) Upon the occurrence of any of the following circumstances, no
penalty shall be levied by the Scholarshare trust in the event of
cancellation of a participation agreement:
   (1) Death or disability of the beneficiary.
   (2) The beneficiary's receipt of a scholarship or allowance or
payment described in Section 135(d)(1)(B) or (C) of the Internal
Revenue Code received by the designated beneficiary, to the extent
that the amount refunded does not exceed the amount of the
scholarship, allowance, or payment.
   (c) In the event of cancellation of a participation agreement for
any of the causes listed in subdivision (b), the participant shall be
entitled to a refund equal to the then current market value of the
amount of all contributions made by the participant under the
participation agreement.
   (d) Any cancellation of a participation agreement shall be deemed
to be made as of the close of business for the calendar month during
which notice of the cancellation is received by the board and the
current market value of contributions as of that date shall be
determined by utilizing the monthly report for that month pursuant to
subparagraph (B) of paragraph (2) of subdivision (a) of Section
69984.
  SEC. 7.  Section 69986 of the Education Code is amended to read:
   69986.  For all purposes of California law, the following apply:
   (a) The participant shall retain ownership of all contributions
made under any participation agreement up to the date of utilization
for payment of higher education costs for the beneficiary, and all
interest derived from the investment of the payments made by the
participant shall be deemed to be held in trust for the benefit of
the beneficiary.  Neither the contributions, nor any interest derived
therefrom, may be pledged as collateral for any loan.
   (b) In the event the participation agreement is canceled prior to
payment of higher education expenses for the beneficiary, the
participant shall retain ownership of all contributions made under
the participation agreement and reversionary right to receive
interest on all the contributions at the rate of interest at which
the contributions were invested.  If cancellation occurs, the program
administrator shall impose a penalty on any interest earned that is
more than a de minimis amount.
   (c) Notwithstanding subdivision (b), if there has been a decrease
in the value of the funds in a participant's account at the time of
cancellation of the participation agreement, the participant shall
not have ownership rights to any amount above the market value of the
funds in the account at the time of cancellation.
   (d) Program administrators shall develop adequate measures to
prevent contributions on behalf of a designated beneficiary in excess
of those necessary to provide for the qualified higher education
expenses of the beneficiary or in excess of the maximum contribution
limits provided for herein.
   (e) If the beneficiary graduates from an institution of higher
education and has no intention of further attendance at an
institution of higher education, and a balance remains in the
participant's account, then the program administrator shall pay the
balance to the participant.  The administrator shall impose a penalty
that is more than de minimis.
   (f) Program administrators shall develop a method to make payment
of qualified higher education expenses directly to higher education
institutions for the benefit of designated beneficiaries and to
control for fraud under any direct reimbursement method of payment
that it may adopt.  The institution of higher education shall obtain
ownership of the payments made for the higher education expenses paid
to the institution at the time each payment is made to the
institution.
   (g) Program administrators may also develop a method to make
payment of qualified higher education expenses directly to
beneficiaries in a manner that is consistent with applicable federal
requirements and restrictions.
   (h) Any amounts paid pursuant to the Golden State Scholarshare
Trust that are not listed in this section shall be owned by the
trust.
   (i) A participant may transfer ownership rights to another
eligible participant, including, but not limited to, a gift of the
ownership rights to an eligible minor beneficiary pursuant to this
act.  The transfer shall be effected and the property distributed in
accordance with administrative regulations adopted by the board or
the terms of the participation agreement.
   (j) Custodians under the California Uniform Transfers to Minors
Act (Part 9 (commencing with Section 3900) of Division 4 of the
Probate Code) may enter into participation agreements in accordance
with regulations adopted by the board.
  SEC. 8.  Section 69989 of the Education Code is amended to read:
   69989.  (a) The board shall submit an annual audited financial
report, prepared in accordance with generally accepted accounting
principles, on the operations of the Scholarshare trust by September
30 to the Governor, the Controller, the State Auditor, and the
Legislature.  The annual audit shall be made by an independent
certified public accountant and shall include, but not be limited to,
direct and indirect costs attributable to the use of outside
consultants, independent contractors, and any other persons who are
not state employees.  Any contributions to the Scholarshare trust
fund that are not directed to a specified beneficiary shall be
accounted for and treated separately in the annual audit.
   (b) The annual audit shall be supplemented by the following
information prepared by the  board:
   (1) Any studies or evaluations prepared in the preceding year.
   (2) A summary of the benefits provided by the trusts including the
number of participants and beneficiaries in the trust.
   (3) Any other information that is relevant in order to make a
full, fair, and effective disclosure of the operations of the
Scholarshare trust.
  SEC. 9.  Section 69993.5 of the Education Code is amended to read:

   69993.5.  The board may adopt regulations for the purposes of this
chapter as emergency regulations in accordance with the rulemaking
provisions of the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code).  For the purposes of the Administrative
Procedure Act, including Section 11349.6 of the Government Code, the
adoption of the regulations shall be deemed to be an emergency and
necessary for the immediate preservation of the public peace, health
and safety, or general welfare, notwithstanding subdivision (e) of
Section 11346.1 of the Government Code.  Notwithstanding subdivision
(e) of Section 11346.1 of the Government Code, any regulation adopted
pursuant to this section shall not remain in effect more than 180
days unless the board complies with rulemaking provisions of the
Administrative Procedure Act (Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code), as
required by subdivision (e) of Section 11346.1 of the Government
Code.
  SEC. 10.  Section 69993.7 is added to the Education Code, to read:

   69993.7.  No public funds nor any funds available pursuant to this
article may be expended to pay for, nor shall the board enter into
any agreement that provides for, the appearance of any elected
official or declared candidate for public office in any paid
advertisement promoting the act.
  SEC. 11.  Regulations adopted by, and contracts entered into by,
the Scholarshare Investment Board's predecessor trustee, the Student
Aid Commission, for purposes of the Golden State Scholarshare Trust
Act (Article 19 (commencing with Section 69980) of Chapter 2 of Part
42 of the Education Code) are deemed to be regulations adopted by,
and contracts entered into by, the Scholarshare Investment Board.
Any of these contracts may be amended when authorized by the
Scholarshare Investment Board.  Until April 1, 2000, Section 10295
of, and Article 4 (commencing with Section 10335) and Article 5
(commencing with Section 10355) of Chapter 2 of Part 2 of Division 2
of the Public Contract Code shall not apply to any of these contract
amendments, but on and after that date shall apply.
